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AUSTRALIAN
MARXIST
REVIEW

Journal of the Communist Party of Australia

ISSUE 41 NOVEMBER 1999

A Short History of Taxation in Australia

by Steve Gibson

The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least amount of hissing.

Jean Baptiste Colbert 1619-1683

Hissing in North America

British colonisation of Australia was not unrelated to the “geese” hissing loudly in the colonies of North America. Prior to the “Boston Tea Party” which was a revolt against the British colonists taxing tea in America, that part of the world was a dumping ground for Britain’s unwanted citizens.

The War of Independence changed all of that, and the colonial masters had to find somewhere else to shut away from sight their “social refuse”.

In the earliest days of the colony of New South Wales there were no taxes, not from altruistic motives but simply because there was nothing to tax! The whole of the colony’s production was appropriated by the government, as were all imported supplies.

Sufficient was then given to convicts and their “minders” to enable them to survive. The few free settlers between them were not generating enough wealth to enable any tax to be levied.

Not until the dawn of the 19th Century were the first taxes introduced in Australia, and — surprise, surprise — they were not levied on property but on consumption.

Wharfage fees, plus duties on wine, spirits and beer provided the bulk of the revenue, which was earmarked for a special purpose — the building, staffing and operation of a new gaol!

During the first 50 years of taxation in Australia, the main feature of taxation was the broadening and extension of the base of excise and customs forms of taxes.

In fact, duties remained the mainstay of Australian taxation until the First World War. By that time, however, they had been considerably broadened so as to include such items as tea, sugar, flour, meal, rice, grain and pulses.

Of course, the landed gentry preferred it that way and they were the decision makers, so that direct taxation was successfully resisted for many years, so much so that the NSW taxation intake for 1875 comprised:

Customs and Excise 90.4%
Income Tax nil
Probate and Stamp Duty 0.4%

The gold licence fee, first introduced in NSW, was the catalyst for the Eureka Stockade rebellion in 1854.

NSW Governor Fitzroy, following the discovery of gold at Bathurst, issued a proclamation saying that all gold found on crown land belonged to the crown.

Very quickly he realised that he would not get away with that one and imposed, instead, a gold licence fee of 30 shillings per month payable to the concurrently established Gold Commission.

Governor La Trobe followed suit and introduced the very same scheme in Victoria, with the well-known consequences — even though the introduction of the licence fee was not of itself the only factor contributing to the Eureka rebellion.

The gold licence fee, in that form, was abolished in Victoria in 1855, and two years later in NSW. It was replaced by a gold export tax of 2s.6p. per ounce and a miner’s right of one pound per annum.

Different states — different approaches

After the gold rushes, the need for government revenues increased greatly. The large increase in the population and corresponding demand for services forced governments to act. Additionally, with the prosperity of the gold rush days behind them, the demand for imports fell and so did income from customs and excise.

What to do? Impose direct taxation? Not on your life.

In NSW the pastoralist-controlled administration commenced to sell off the public estate, thereby deferring for a time the imposition of land and income tax.

In Victoria, the import taxes were cranked up as the wealthy pastoralists fought tooth and claw to prevent direct taxation. To deflect the fears and objections of the workers and less well off, the duties were popularised as an employment policy. Sound familiar?

One difficulty with heavy reliance on customs and excise duties was the problem of accurately and honestly assessing the value of imports. Those doing the importing, left to their own devices, invariably under-assessed, thereby avoiding tax, probably one of the first “tax minimisation schemes”.

This was a huge problem in Victoria, choosing as it did this main method of revenue raising. So much so that a tariff was set in 1866 of 10 per cent of value, to be levied on a still wider range of goods.

This was marketed as a protectionist tariff, which was grist to the mill of the protectionists who continually pressed for the protection wall to be raised ever higher. By the 1890s it had risen to an unsustainable 30 to 50 per cent.

In Western Australia and Queensland, relatively undeveloped at the time, revenues from the traditional areas enabled them to get by. South Australia, also, managed fairly well, but was first to introduce land and income tax.

Despite the differing emphases on revenue-raising measures between the states in the latter half of the 19th Century, the first Federal Government from 1901 adopted with enthusiasm the Victorian government’s attitude to tariffs and protectionism.

Taxation for justice

“A government which robs Peter to pay Paul can always depend on the support of Paul”, said George Bernard Shaw.

Taxation as an income distribution mechanism could not have been further from the minds of those 19th Century legislators, but with the rise of militant unionism in the late 1800s, and the consequent embryo involvement of the labour movement, the scales of influence commenced to tilt back from the hitherto unchallenged dominance of the landed gentry.

Colonial legislatures were now forced to turn to more direct forms of taxation under pressure from those who until then had been forced to carry a disproportionate burden.

The first direct taxes took the form of taxing the estates of deceased persons. At the outset these applied only to personal estates and not real estate. The first death duty was applied in 1851 in NSW, to be followed in 1865 by Tasmania. The Tasmanian duty was labelled as a succession duty, but applied only to personal estate until much later.

By the time the Victorian government moved in 1870, the NSW duty had been extended to realty, and Victoria followed suit. South Australia was next in 1876, followed by Queensland in 1886 and Western Australia in 1895.

Although the landowners wailed and bleated about the eventual resort to direct taxes, it was becoming increasingly clear that many had virtually stolen the land in the first place.

No notice whatsoever was taken of the Aboriginal population who may have expected some land rights.

Apart from this, many in the non-Aboriginal community were, by the 1880s, complaining that huge tracts of the most useful land had been passed to private hands at ridiculously low prices.

Behind smokescreens of “land policy”, leaseholds were converted to freeholds by the legislatures which were dominated by the landowners themselves.

The labour movement campaigned hard for taxation of land, no doubt to some extent due to their treatment at the hands of the landowners during the shearers’ struggles for justice.

They pressed for a graduated scale with exemptions at the lower end. This was seen as likely to have the effect of forcing large landholders to divest themselves of some of it, reducing the size of their holdings and extending to others a chance to buy and exploit the land.

We learn from the lessons of history that the wealthy in this country have always used each and every means at their disposal to block any and all measures designed to ensure that they pay any, let alone their “fair share”, of the taxes necessary to pay for commonly used infrastructure and services, just as they do today.

In fact, the necessity to introduce a form of land tax in Western Australia, brought about by the termination of a special Federal grant in 1906, gave rise to the first but by no means the last bellow demanding secession.

Income tax

Tasmania was the first state to introduce income tax. It did so in 1880. It took the form of a withholding tax on distributed income of companies. The tax was seen as necessary due to a fiscal crisis. For much the same reason, South Australia followed suit in 1884. By 1907, all states had introduced income tax.

Generally speaking, the income taxes, which varied in form from state to state, accompanied the introduction of the land tax, illustrating the waning of the period in which reliance on indirect taxes such as customs and excise provided sufficient revenue for governments.

Also, on the coming of Federation, the prerogative to levy customs and excise was ceded to the Commonwealth.

Much opposition, as can be expected to a progressive taxation scale, came from those best able to pay.

Like the railway track gauges, the taxation regimes in force in the different states constituted a nightmarish mishmash. Company tax variations diminished somewhat after Federation, a trend given added impetus by state governments competing to attract business investments.

In efforts to overcome entrenched opposition to income tax proposals, proponents used as an argument the line that individuals required to pay direct taxes would be more likely to demand accountability in the dispensation of public funds.

Which suggests the possibility of using the counter argument, now that the approach favoured by the Howard Government is to move away from heavy reliance on direct taxation.

Federation brings tax changes

The Australian Constitution, adopted at the time of Federation, provided for all revenue from customs and excise to be collected by the new Commonwealth Government. It also gave the Commonwealth income taxing powers.

It was a matter of fact that at the time the income from customs and excise far exceeded the needs of the Commonwealth, bearing in mind that, despite the states having, by then, introduced other revenue-raising mechanisms, the customs and excise proportion of their total income was overwhelming.

It was therefore specified that most of the money thus collected would be returned to the states for their use. The proportionate distribution was as much of a headache then as it is now, with each state pleading special circumstances.

With regard to the constitutional right given the Commonwealth to impose income tax, it was confidently predicted that this power would not be needed.

In fact, Edmund Barton, the first Federal Prime Minister, said, “we ought not to cripple them using our power of direct taxation, unless under the stress of some great emergency; we ought to leave them free to enlarge their revenues by direct taxation, seeing that they will have no power to resort to customs or excise duties if they want additional revenue.”

Commonwealth-State financial arrangements included a section guaranteeing the states at least 75 per cent of the customs and excise revenue, with provision for a bonus grant in the event the Commonwealth’s 25 per cent share proved more than sufficient for its requirements.

These provision were intended to have a life of ten years, after which they were to be reviewed. The arrangement, however, worked so well in favour of the states that towards the end of the ten year period they sought to have it made a permanent provision.

Obviously, important aspects of the Federation’s financial future were overlooked.

Popular demands for increased social spending were inevitable, but the question of how they would be financed was left unresolved.

The rising influence of the labour movement, inside and outside parliament, was accompanied by increasing pressure for worthwhile social expenditure. A national aged persons’ pension scheme was a demand receiving growing support.

The Deakin Government, between 1905 and 1910, faced with this dilemma, attempted without success to negotiate a more flexible financial arrangement.

Faced with an impasse, Deakin introduced and had passed an act nullifying the agreement that any “surplus” from the Commonwealth’s 25 per cent share of customs and excise revenue be returned to the states.

The states were outraged, but not nearly as much as they were when the first Labor Government, led by Andrew Fisher, introduced legislation for a national land tax in 1909.

This was a hugely progressive tax, designed not only to provide revenue for the age pension scheme, but like some of its state predecessors, it sought to break up huge land holdings.

It contained another worthwhile feature in that it taxed leasehold pastoral land which until then had escaped taxation. There was an enormous hue and cry, with the states appealing to the High Court. This declined to intervene.

Lacking an outright majority, the Fisher Government was forced to resign when Deakin withdrew his party’s support.

At the consequent election the Labor Party was returned to power with a large majority, and the national land tax became law.

Federal income tax

The “stress of some great emergency” contained in Edmund Barton’s address of years before, arrived with the outbreak of World War I and Australia’s involvement in this.

In 1915 the Hughes Government introduced the first national income tax. Dual (State and Commonwealth) income taxes were imposed until the states were compelled to hand over income taxing powers to the Commonwealth Curtin-led Labor Government during World War II.

Conclusions

It can readily be seen from this survey that the current moaning and groaning by the business community, both directly and indirectly through their parliamentary representatives, about the “complex, unfair and difficult to administer” taxation regime is by no means new.

The most far-reaching taxation changes have been brought about during the terms in office of Labor Governments, and have always been accompanied by predictions of economic ruin coming from those whose positions of privilege are likely to be interfered with.

Any signalled intention to move away from indirect towards direct forms of taxation has always been vigorously opposed by the wealthy. They have ruthlessly used their positions of power and influence to defeat such moves.

The intention of the Howard Government is to swing back the pendulum to a position where an increasing proportion of taxation revenue is raised by indirect, rather than direct taxation.

It must be recognised, though, that there is no desire to scrap income tax altogether. Quite the contrary.

The present income tax regime works heavily in favour of the rich who use all manner of devices to minimise their tax, whereas working people have no such manoeuvres at their disposal.

Additionally, while there is at least a pretence that the rate of any new consumption tax will not be raised, no such commitments have been given in respect of the level of the remaining forms of direct taxation, particularly income tax.

The Labor Party of the late 20th Century is quite different to that of 100 years ago. It now aspires to be a party of the entire people which, of course, includes the wealthy — the very ones whose influence it was set up to counter.

In a class-divided society such aspirations are obviously meaningless.

Consequently, those workers who see the answer to the problem of unfair taxation regimes residing in the election of a Labor Government have got their centuries mixed up.

Nonetheless, the Beazley-led Federal parliamentary Labor Opposition has declared its position to be one rigorously opposed to the introduction of a “goods and services” tax, under which circumstances it must ally itself with those who have given a similar commitment.

The Communist Party unequivocally opposes any form of consumption tax, for such a tax transfers, and is designed to transfer, the burden of taxation from the wealthy, who can afford to pay taxes but seek to dodge them, onto the backs of those least able to afford them.

It still remains to be seen whether the Labor Party, once in power, will live up to the promises it makes while in opposition — unless pressured to do so by an energetic anti-GST campaign, in which the Communist Party and other progressive social forces will play a prominent part.

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